Case No COMP/M.5721 - European Commission
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Case No COMP/M.5721 -
OTTO/ PRIMONDO
ASSETS
Only the English text is available and authentic.
REGULATION (EC) No 139/2004
MERGER PROCEDURE
Article 6(1)(b) in conjunction with Art 6(2)
Date: 16/02/2010
In electronic form on the EUR-Lex website under
document number 32010M5721
Office for Publications of the European Union
L-2985 Luxembourg
1EUROPEAN COMMISSION
Brussels, 16.02.2010
SG-Greffe (2010) D/ 2066/ 2067/
2068/ 2069
C(2010) 1023
In the published version of this decision, some
information has been omitted pursuant to Article PUBLIC VERSION
17(2) of Council Regulation (EC) No 139/2004
concerning non-disclosure of business secrets and MERGER PROCEDURE
other confidential information. The omissions are ARTICLE 6(1)(b) DECISION IN
shown thus […]. Where possible the information
omitted has been replaced by ranges of figures or a
CONJUNCTION WITH
general description. ARTICLE 6(2)
To the notifying parties:
Dear Sir/Madam,
Subject: Case No COMP/M.5721 – Otto/ Primondo Assets
Notification of 18 December 2009 pursuant to Article 4 of Council
Regulation No 139/2004 1
1. On 18 December 2009, the Commission received a notification of a proposed
concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 by
which the undertaking Otto GmbH & Co KG ("Otto", Germany) and its subsidiaries
PROVISTA Siebenhundertdreiundsiebzigste Verwaltungsgesellschaft (Germany),
Otto Finance Cyprus Limited (Cyprus) und BIC Retail Enterprises, Inc (Cyprus)
acquire within the meaning of Article 3(1)(b) of the Regulation (EC) No 139/2004
control of various assets (trademarks and trademark applications, a patent, domain
names, copyrights and rights of use of client data) of the undertakings Primondo
GmbH i.L. (in liquidation) (Germany), Quelle GmbH i.L. (Germany), Quelle.Contact
Holding GmbH i.L. (Germany) and SB-Großhandels GmbH C+C Großhandel
Objektausstattung i.L. (Germany), as well as - by way of purchase of shares – control
over SAO Mail Order Service (Russia).
I. THE PARTIES
2. Otto is the holding company of the Otto Group. The Otto Group is a trading and
service company, which is internationally active through its subsidiaries in various
retail channels (including home-shopping), financial services and the services sector.
1 OJ L 24, 29.1.2004 p. 1.
Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 1113. Primondo GmbH i.L., Quelle GmbH i.L., Quelle.Contact Holding GmbH i.L. and
SB-Großhandels GmbH C+C Großhandel Objektausstattung i.L. were active with the
assets to be transferred in particular in the area of home-shopping in various EU
Member States.
4. SAO Mail Order Service is active in the area of home-shopping in Russia.
II. THE TRANSACTION AND THE CONCENTRATION
Transaction 1
5. On 4 November 2009, the German insolvency administrator agreed with Otto and its
subsidiaries PROVISTA Siebenhundertdreiundsiebzigste Verwaltungsgesellschaft
(Germany), Otto Finance Cyprus Limited (Cyprus) und BIC Retail Enterprises, Inc
(Cyprus) on the sale of individual assets of Quelle and Primondo (hereinafter
"Transaction 1").
6. These assets are trademarks (such as "Quelle", "Privileg" etc.) and trademark
applications, a patent, domain names, copyrights and customer data which are
acquired from Primondo GmbH i.L., Quelle GmbH i.L., Quelle.Contact Holding GmbH
i.L. and SB-Großhandels GmbH C+C Großhandel Objektausstattung i.L. 2 These assets
were used by these companies in particular in the area of home-shopping in various EU
Member States.
7. It should be noted at the outset that trademarks such as "Quelle", "Privileg" etc. as well
as copyrights are transferred for all Member States where the transaction leads to
affected markets. However, the situation varies from Member State to Member State as
far as all other assets are concerned. In the case of Germany, also the "Quelle" internet
domain is transferred and Otto will have the right to use Quelle's customer data.3 In
contrast, Otto is very unlikely to acquire customer data in Poland, the Czech Republic
and the Slovak Republic as the relevant Quelle subsidiaries in these Member States have
recently been acquired by a third party. As far as all other Member States are concerned
where the transaction leads to affected markets, it cannot at the current stage be excluded
that Otto will acquire further Quelle assets than the trademarks and copyrights
mentioned above. More in particular with regard to the "Quelle" internet domain in
Member States other than Germany, these domain rights have not yet been transferred to
Otto but Otto plans to acquire these domains either by way of contractual negotiation
with the Quelle subsidiaries in the relevant Member States or by way of priority of its
"Quelle" trademark rights.
8. Transaction 1 does thus not relate to the acquisition of Primondo subsidiaries by way
of share deal but to the acquisition of some of their main assets. According to Article
3(1)(b) of the Merger Regulation, also the acquisition of certain assets of an
undertaking may constitute the object of control for the purposes of the Merger
2 Furthermore, Otto will acquire Quelle's […]% shareholding in the German company SCHUFA Holding
AG which provides information about debtors and credit applicants.
3 For reasons of data protection, Otto will not itself receive these customer data but intends to use these data
via a third party (so-called "letter-shop"). This letter-shop would send Otto's catalogues to former Quelle
customers selected on the basis of criteria determined by Otto. Only if - following such use of the
customer data - a customer places an order with Otto, Otto will be able to include that customer in its own
customer data base.
2Regulation. Paragraph 24 of the Commission's Consolidated Jurisdictional Notice
further specifies that such assets need to be a business with a market presence, to
which a market turnover can be clearly attributed.
9. The parties argue that no precise turnover can be allocated to the use of trademark
rights but that a retail company such as Quelle achieves a "very significant" part of its
turnover on the basis of its trademarks which already triggers the Commission's
jurisdiction in the present case. This applies even more where Otto also acquires a
right to use Quelle's customer data and other assets.
10. The assets at issue in the present case primarily concern the home-shopping business,
and constituted an important supporting basis for the business of the respective
Primondo subsidiaries. Indeed, home-shopping companies do by their very nature not
have their own production facilities or shops at their disposal. Therefore, assets like
trademarks, domain names, and client data constitute a main basis for such home-
shopping business and the turnover generated by trading with consumer goods; the
same conclusion applies to those Member States where customer data are very
unlikely to be transferred, as already the trademarks and domain names at issue
constitute significant assets in the home-shopping business which are vital for the
acquisition of customers and turnover. Accordingly, these assets constitute a business
to which a market turnover can be attributed, and their transfer amounts to an
acquisition of control within the meaning of Article 3(1) (b) of the Merger
Regulation. 4
Transaction 2
11. On 4 November 2009, it was also agreed that Otto Finance Cyprus Limited (Cyprus)
und BIC Retail Enterprises, Inc (Cyprus) acquire all shares in SAO Mail Order Service
("Quelle Russia") from Primondo's subsidiary Quelle International Limited (hereinafter
"Transaction 2"). Quelle Russia is active in the area of home-shopping in the territory of
Russia.
12. This acquisition of sole control constitutes a concentration according to Article
3(1)(b) of the Merger Regulation.
13. Transactions 1 and 2 are carried out between the same undertakings and undertakings
belonging to the same respective groups simultaneously, i.e. within a two year time
frame. All undertakings involved in the two transactions on the seller side are part of
the Primondo group and all undertakings involved on the purchaser side are part of
the Otto group. The two transactions therefore constitute one concentration in the
sense of Article 5 (2) subparagraph 2 of the Merger Regulation.
4 See also paragraph 24 of the Commission Consolidated Jurisdictional Notice according to which a
transaction confined to intangible assets such as brands, patents or copyrights may also be considered to be a
concentration if those assets constitute a business with a market turnover.
3III. COMMUNITY DIMENSION
14. The undertakings concerned have a combined aggregate world-wide turnover of more
than EUR 5 billion (Otto EUR 10.11 billion, Primondo assets to be acquired EUR
[…] billion) and each of them has a Community-wide turnover in excess of EUR 250
million (Otto EUR […] billion, Primondo assets to be acquired EUR […] billion). 5
Otto does not achieve more than two-thirds of its aggregate Community-wide
turnover within one and the same Member State. The proposed transaction therefore
has a Community dimension within the meaning of Article 1(2) of the EC Merger
Regulation.
IV. RELEVANT MARKETS
15. The proposed transaction primarily concerns home-shopping of a wide range of
consumer goods. 6
Relevant product market
16. The parties submit that the relevant product market is the broad non-food retail
market, which includes retail through home-shopping as well as high street shops (so-
called "brick and mortar"). The parties refer in this regard to the decision practice of
several national competition authorities. 7
17. In its previous decisions in distance retail selling, the Commission's starting point
was the distinction between food and non-food items in the retail sector. 8 For the
non-food retail segment, the Commission further considered three alternative product
market definitions – non-food retail, home-shopping, and agency mail order (i.e.
sales by agents of consumer goods displayed in home-shopping catalogues), but the
definition was left open in that case. 9 A distinction was further indicated between
product categories (ladies wear, menswear, home textiles, sports goods, furniture). 10
5 Even if not the entire Quelle turnover were to be allocated to the Primondo assets, the turnover in the EU
would exceed EUR 250 million.
6 The transaction does not appear to have an appreciable impact in other areas as is also confirmed by the
market investigation. As regards the travel agency business, the parties' combined market share is below
5% both in the overall retail market (comprising "brick and mortar" travel agencies and online travel
agencies) and in a narrower market for online travel agency business. As regards the sale of office goods
to professional customers, the Commission's investigation showed that Otto supplies specific office goods
to customers, while the activity carried out under the relevant Quelle assets did not relate to specific office
goods but to other products and complete office solutions.
7 More specifically with regard to the product categories at issue in the present case, the parties refer to the
decision of the UK Office of Fair Trading of 20 June 2005 in GUS / Index Business of Littlewoods Ltd.
which concerned two multi-channel retailers of consumer goods; the OFT applied a broad market
definition encompassing "brick and mortar" and home-shopping on the basis of findings reached by the
UK Competition Commission in an earlier investigation (March/GUS Report of 2004) and by the OFT's
market investigation. Furthermore, in a decision of the German Federal Cartel Office of 19 September
2001 in B 9 – 15/01 ABRD / Löwengrund Immobilien / Möbel Engelhardt, neither was a distinction made
between the different channels for the sale of furniture nor was such a distinction discussed in detail.
8 COMP/M.070 – Otto/Grattan, para. 10; COMP/M.080 – La Redoute/Empire, para. 10.
9 COMP/M.1527 – OTTO Versand/Freemans, paras. 14 and 24. See also case M.1916 – RTL
Newmedia/Primus-Online where it was left open if separate markets need to be defined for "brick and
mortar" retail and home-shopping.
10 COMP/M.070 – Otto/Grattan, para. 17.
418. In further Commission decisions, distinctions were considered between different
sales channels and product categories. 11
19. The market investigation 12 has confirmed that the non-food retail segment should be
sub-divided according to product categories. 13 In particular, the following product
categories were identified: (i) clothing and footwear, (ii) furniture and furnishing,
(iii) electronics and appliance, (iv) DYI, home improvement and garden centres, (v)
health and beauty, (vi) toys and games, (vii) sport goods and camping. Furthermore,
the market investigation revealed that some of the above mentioned product
categories could be sub-divided even further according to sub-categories, e.g.
clothing could be distinguished from footwear and possibly further discerned into
women's, men's and children's apparel, underwear or furniture could be distinguished
from home textiles. On the basis of classifications and market data by the market
research company GfK 14 , the following product categories are discussed in this
decision: "Women's apparel", "Men's apparel", "Children's apparel", "Underwear",
"Shoes", "Leather goods", "Sports textiles", "Sport shoes", "Electronics", "Large
electronic appliances", "Small electronic appliances", "Home improvement /
Gardens", "Furniture", "Home textiles", "Lighting" and "Toys". The products
belonging to one of the above-mentioned category cannot be considered as
substitutes to products from any other category. Moreover, the competitive
conditions in these segments differ significantly given that there are a large number
of market players that are specialised in one or some of the various product
categories.
20. As regards the question whether there should be a distinction between the various
sales channels involved (home-shopping by internet, home-shopping by catalogue,
home shopping by other means and "brick and mortar" sales), the market
investigation has provided evidence that all home-shopping channels, in particular
home-shopping by internet and home-shopping by catalogue, form part of the same
relevant market. First, a large number of respondents to the Commission's market
investigation considered that these channels are interchangeable from the customer's
point of view 15 . Furthermore, due to harmonisation at EU level all types of distance
selling are subject to a similar regulatory framework which leads to similar
conditions at which customers purchase goods, e.g. concerning the right to return
purchased goods. 16
11 See e.g. COMP/M.4226 – DSGI/Fotovista, paras. 9-14; COMP/M.4392 – DSGI/FR-Invest/F-Group JV,
paras. 9-13.
12 Questionnaires to the parties' competitors and customer organisations, such as the German
Verbraucherzentrale.
13 Responses to question number 17 of the Commission's questionnaire to competitors dated 06/01/2010 and
question number 10 of the Commission's questionnaire to consumer organisations dated 06/01/2010.
14 GfK: Gesellschaft für Konsumforschung.
15 Responses to question number 8 of the Commission's questionnaire to competitors dated 06/01/2010 and
question number 4 of the Commission's questionnaire to consumer organisations dated 06/01/2010.
16 Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of
consumers in respect of distance contracts, OJ L 144, 4.6.1997, page 19–27.
521. This is confirmed by a study submitted by the parties which concludes that all home-
shopping channels are very similar to each other from the customer's point of view
and strongly inter-related, and thus suppliers are "capable of harmonising them
easily". 17 Even though there are customers who still have a preference for home-
shopping by catalogue or do not have access to internet, the density of internet
coverage in Europe is growing fast. Consequently, home-shopping companies
offering goods in a catalogue have lost a significant part of their customers for the
benefit of internet home-shopping providers. According to a study submitted by the
parties such a cannibalisation effect is strongest for apparel and furniture
(approximately 70% and more of turnover generated in online retailing has been
achieved at the expense of turnover that would have otherwise been generated
through home-shopping by catalogue). 18 As regards for instance electric appliances
(including large electric appliances), a large majority of respondents to the above-
mentioned study indicated that they informed themselves on-line first before ordering
goods by catalogue. 19
22. This trend is according to the respondents to the Commission's market investigation 20
forecast to continue in the years to come. 21 In light of these developments, the
prospective analysis should take into account the ongoing integration between
different distance selling retail distribution channels, in particular home-shopping by
internet and home-shopping by catalogue.
23. As regards the distinction between distance selling channels on the one hand and
"brick and mortar" shops on the other hand, the parties have submitted a number of
studies and internal documents in support of their view that an overall (non-food)
retail market exists (for all product categories mentioned above). In essence, the
parties consider that there is a strong interrelation between all retail non-food
distribution channels which leads to substitutability of these channels from the
customer's as well as supplier's point of view. This would be evidenced by the
growing importance of multi-channel retailing and the fact that all players (including
Otto) constantly monitor all channels. Switching of customers between the channels
would be easy and would not incur costs, therefore no price discrimination would be
possible. Easy switching of customers would be also due to high transparency of
prices and conditions in internet and increasing convenience of online shopping.
Furthermore, both retail channels would have identical characteristics: prices,
conditions and the range of products offered by multi-channel retailers would be
equal in all channels. In addition, the distance selling directive 22 would guarantee
comparability between shopping at high street shops and home-shopping.
17 E-Commerce Center Handel, van Baal/Hudetz, Wechselwirkungen, im Multi-Channel-Vertrieb, 2006,
pages 68, 89, 91 et seq.
18 E-Commerce Center Handel, van Baal/Hudetz, Wechselwirkungen, im Multi-Channel-Vertrieb, 2006,
page 102.
19 E-Commerce Center Handel, van Baal/Hudetz, Wechselwirkungen, im Multi-Channel-Vertrieb, 2006,
page 102.
20 Responses to question number 40 of the Commission's questionnaire to competitors dated 06/01/2010 and
question number 27 of the Commission's questionnaire to consumer organisations dated 06/01/2010.
21 See also OC&C Strategy Consultants, OC&C perspective on multi-channel trends, Overview of recent
studies and publications, January 2010 (draft version), page 5.
22 Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of
consumers in respect of distance contracts, OJ L 144, 4.6.1997, page 19–27.
624. The Commission's investigation in the present case has not provided sufficient
evidence to conclude that indeed all retail distribution channels belong to the same
product market. A large number of respondents did not consider them inter-
changeable from the customer's point of view. 23 They indicated that in response to a
price increase of 5-10% in mail order/home shopping an insufficient number of
customers would switch to "brick and mortar" retailers and therefore such a price
increase would be profitable for mail order/home-shopping companies. Generally, the
market investigation has revealed that the more standardised products within a
product category are (e.g. electronics, where features of a given home-shopping
product are clearly described), the more likely it is that brick and mortar and distance
selling could belong to the same relevant product market.
25. In general terms, it must be noted that there are quite significant differences in the
way retailers communicate with and acquire customers. Shopping at high street shops
and "home-shopping" each have their specific advantages that may be appealing to
the public. An important advantage of "brick and mortar" shopping from the
customer's perspective is that goods can be inspected and specialist advice is
available if necessary. Moreover, goods are often available immediately. On the other
hand, an important advantage of home shopping vis-à-vis "brick and mortar" is that
shopping is possible on a 24h/7 days per week basis and there is no limitation as
regards the spectrum and quantity of products on offer. Moreover, distance selling is
subject to consumer-friendly regulation granting consumers the right to revoke the
purchase agreement and send back the goods after having received and tested them
within a specified period of time.
26. While it is clear from the studies presented by the parties that indeed a proportion of
customers do compare prices and conditions offered in various channels and do not
necessarily purchase goods in the channel that they consulted first, the intensity of
such an inter-relation depends on the product category. Notably, such an inter-
relation appears strongest for electrical appliances. Generally, the higher the price the
more likely it is that a consumer will search for information across all channels. The
documents presented furthermore evidence that a harmonisation of appearance across
the channels enhances customer's loyalty and therefore stimulates revenues in long-
term. One study forecasts that "The online channel will increasingly be used in
conjunction with offline channels (stores)" and hence recommends that "This mix of
channel usage (in different phases of the buying process, for different moments, in
different situations, etc.) should provide a consistent consumer experience; look for
the right level of online/off-line synergies – but also leverage the different
characteristics of each channel". 24
27. However, the home-shopping channels on the one hand and the "brick and mortar"
retailing on the other hand are clearly less interrelated than the home-shopping
channels (i.e. in particular home-shopping by internet and home-shopping by
catalogue). This is evidenced, for instance, by the fact that customers' switching
during the purchase decision making process (i.e. purchase of goods in a different
channel than the one that have been originally consulted by a customer) within the
23 Responses to question number 6 of the Commission's questionnaire to competitors dated 06/01/2010 and
question number 2 of the Commission's questionnaire to consumer organisations dated 06/01/2010.
24 Capgemini, Future Consumer, How Shopper Needs and Behaviour Will Impact Tomorrow's Value
Chain", page 17.
7home-shopping channel is much more frequent than between the home-shopping and
the "brick and mortar" channel. 25 Furthermore, there is a considerably lower
cannibalisation of revenues between the "home-shopping" retailing on the one hand
and the "brick and mortar" retailing on the other hand than between the online and
the catalogue-segment of the home-shopping market. Indeed, the cannibalisation rate
between the online and the catalogue-segment of the same provider (approx. 55-65%)
is approximately twice as high as the cannibalisation rate between stationary shops
and both home-shopping channels (23-32% as regards online shops and 25%-40% as
regards catalogues). 26
28. Furthermore, several studies submitted by the parties confirm the finding of the
market investigation in the sense that they recognise that both channels serve
different customers' needs and thus have different advantages and disadvantages from
customer's point of view. Therefore they complement each other rather than being
substitutes to each other. One study discusses different roles of stationary and online
retailing and concludes that these segments complement each other as regards the
non-food sector. 27 Another study shows that differences between the competitive
conditions in both channels are still very strong. 28 A different study states that all
distant-selling channels have similar advantages and disadvantages as opposed to the
features of stationary retailing against the background that stationary shopping serves
different customers' requirements in terms of convenience and service. 29
29. In addition, the prices and conditions of goods offered by a multi-channel retailer are
not necessarily identical across the channels. Indeed, it is clear from one study that
there are at least four different ways to shape a multi-channel appearance and several
retailers (such as Lorèal, Sony, Tchibo) have opted for more or less intensive
independence of each of their retail channels. 30 This is also the result of two other
studies which acknowledge that not all the channels of a multi-channel retailer
are/need to be fully integrated and harmonised. 31
30. It follows from the above that in terms of the product market definition the non-food
retail segment should be sub-divided according to different product and could be sub-
divided even further according to sub-categories (as mentioned above). The question
whether all retail sales channels form one product market (for each of the individual
product categories mentioned above) can be left open given that serious doubts that
would arise in case of a narrow market definition are in any event resolved by the
Commitments submitted by Otto.
25 E-Commerce Center Handel, van Baal/Hudetz, Wechselwirkungen, im Multi-Channel-Vertrieb, 2006,
page 14, 101 et seq.
26 E-Commerce Center Handel, van Baal/Hudetz, Wechselwirkungen, im Multi-Channel-Vertrieb, 2006,
page 73.
27 Price Waterhouse Coopers, Multichannel Management, Erfolgreich in der (neuen) Vielfalt, 05/11/2009,
page 27.
28 OC&C Strategy Consultants, Entwicklungen und Herausforderungen im Multi-Channel Retailing, June
2007, page 2.
29 E-Commerce Center Handel, van Baal/Hudetz, Wechselwirkungen, im Multi-Channel-Vertrieb, 2006,
pages 68, 62 and 64.
30 Price Waterhouse Coopers, Multichannel Management, Erfolgreich in der (neuen) Vielfalt, 05/11/2009,
page 12.
31 Atkearney, Multi-Channel Retailing – Jeder redet darüber aber (fast) keener macht's richtig, Internationale
Studienergebnisse (Auswahl), 2008, page 7; E-Commerce Center Handel, van Baal/Hudetz,
Wechselwirkungen, im Multi-Channel-Vertrieb, 2006, page 16.
8Relevant geographic market
31. With respect to the geographic market definition, the parties submit that the relevant
markets are national in scope, in particular in the light of elements such as language
differences and costs and delays associated with placing international orders and the
international distribution of individual packages. This is in line with previous
Commission decisions in the home-shopping area. 32
32. As far as the home-shopping market is concerned, the market investigation showed
that the relevant product markets should indeed be regarded as national in scope and
confirmed the existence of the elements mentioned by the parties.
33. As regards a possible market comprising both home-shopping and "brick and mortar"
which cannot be excluded in the present case, the question arises whether the
geographic scope of such an overall market would be confined to regional or even
local areas. 33 It should be noted that in addition to home-shopping, Otto also operates
"brick and mortar" retail shops, in particular in Germany but also in Poland and Italy.
These retail shops sell fashion, sports goods and toys. Against this background, the
Commission analysed detailed data relating to the parties' market position on a
local/regional basis for all Member States where Otto operates stationary retail shops.
In any event, the geographic market definition can be left open given that the
proposed transaction, as modified by the Commitments, does not lead to serious
doubts under any alternative geographic market definition.
V. COMPETITIVE ASSESSMENT
34. As discussed in section II above, Otto acquires only specific assets out of the
insolvent Primondo group (and not the entire previous operations of Quelle). It
therefore does not appear justified to take the entire previous Quelle turnover into
account in the competitive assessment. The notifying party claims that only 10% of
previous turnover could realistically be achieved by Otto with the Quelle assets. 34
35. It should be noted in this regard that Quelle has gone through difficult economic times
and filed for insolvency in June 2009. However, an analysis of the Quelle turnover in the
first half of 2009 in Germany as compared to the first half of 2008 showed that Quelle's
turnover was only reduced by 7.7%.
36. As regards the correct churn rate to be applied, the answers of a considerable number of
participants to the market investigation suggest that Otto would be likely to achieve a
considerably higher share of Quelle's previous turnover than the 10% that were
suggested by the notifying party, in particular due to the high brand loyalty of German
customers to Quelle. While the views of respondents to the market investigation were
32 COMP/M.070 – Otto/Grattan, para. 11; COMP/M.080 – La Redoute/Empire, para. 12; COMP/M.1527 -
Otto Versand/Freemans, para. 25.
33 See e.g. COMP/M.4686 - Louis Delhaize Magyar/Magyar Hipermarket KFT where the Commission
defined local markets (20-30 minute drive time) as far as the activities of supermarkets in Hungary were
concerned.
34 Regarding customer data, Otto submitted examples of past experience in relation to the use of customer
data which indicate that the response rate in these cases did not exceed 10%. In addition, Otto argues that
[significant share] of all Quelle customers in Germany would already be customer of Otto and thus
covered in the Otto database. However, it is likely that the use of the customer data and the trademark to
be acquired will lead to additional benefits for Otto.
9varying between 15% and 80% as regards the precise churn rate to be applied in a
hypothetical situation that similar assets were to be acquired under normal circumstances
(i.e. no insolvency), several competitors indicated that they expect that in the case at
hand Otto would be able to achieve 50% or more of Quelle's previous turnover. 35
37. On this basis, the Commission applied a churn rate of 50% as an approximation of
the rate Otto will be able to take over from the previous Quelle turnover in those
Member States where Otto is in a position to acquire the brand and the customer data. In
contrast, a higher churn rate of 75% is assumed for Poland, the Czech Republic and
the Slovak Republic as in these Member States a third party has already acquired the
respective Quelle subsidiary and it is thus very unlikely that Otto will use the
customer data in these Member States, i.e. Otto will in these Member States only
acquire trademarks and likely the relevant internet domains. The Commission, based
on responses from the market investigation and the market test, considers for the case
at hand that access to customer data is decisive to successfully take over previous
turnover. It appears therefore justified to take into account a higher churn rate, which
can be 75% or even higher, if only trademarks without customer data are acquired.
Analysis by Member State – home-shopping market
Germany
38. As mentioned in section II above, the assets to be acquired by Otto in Germany
(where insolvency proceedings were opened) include not only trademark rights and
the "Quelle" internet domain but also the right of Otto to use Quelle's customer data in
Germany.
Market structure
39. As follows from table 1 below 36 , taking into account 50% Quelle turnover, the
combined market share of the parties in Germany would be above 40% in the product
categories "Fashion total" 37 , "Women's apparel", "Underwear", "Sports textiles",
"Sport shoes", "Furnishing total", "Furniture" and "Home textiles". As is illustrated in
the column "50% of Quelle turnover", the market share increment in those markets is
between 3.5% and 12.6%.
35 Responses to questions number 34-36 of the Commission's questionnaire to competitors dated
06/01/2010; however, it needs to be taken into account that also lower estimates were given. The German
consumer organisation Verbraucherzentrale opined that a high churn rate would be unlikely, see response to
questions number 23 and 24 of the Commission's questionnaire to consumer organisations dated 06/01/2010.
36 All market data for Germany is based on figures from GfK.
37 The category "Fashion total" (or hereinafter also referred to as "Clothing and Footwear") is the sum of the
product categories "Women's apparel", "Men's apparel", "Children's apparel", "Underwear", "Shoes" and
"Leather goods".
10Market shares in %
Market size
Germany 100% of Quelle turnover 50% of Quelle turnover
Million EUR Otto
Quelle Combined Quelle Combined
Fashion total […] [30-40] [10-20] [40-50] [5-10] [40-50]
Women's apparel […] [40-50] [5-10] [50-60] [0-5] [50-60]
Underwear […] [40-50] [10-20] [60-70] [5-10] [50-60]
Sports Sport textiles […] [30-40] [5-10] [40-50] [0-5] [40-50]
Sport shoes […] [40-50] [10-20] [60-70] [5-10] [50-60]
Furnishing total […] [30-40] [10-20] [40-50] [5-10] [40-50]
Furniture […] [40-50] [20-30] [60-70] [10-20] [50-60]
Home textiles […] [40-50] [20-30] [60-70] [10-20] [50-60]
Table 1 38
40. As regards all product categories in table 1, i.e. where the parties' combined market
share exceeds 40%, the competitive landscape is generally widely dispersed and even
on the basis of the 50% scenario the parties are for some markets much larger than
their next biggest competitor. 39 More in particular, for the different product
categories, the parties' main competitors and their market shares compared to the
parties' market shares (taking account of 50% of Quelle's turnover) are: 40
a) "Fashion total": Neckermann ([5-10]%), ebay ([0-5]%) 41 , Klingel ([0-5]%), Bader
([0-5]%), and QVC ([0-5]%). On this market, the parties have a combined market
share of [40-50]% ([30-40]% plus [5-10]%) and are thus more than eight times
larger than their biggest competitor;
b) "Women's apparel": Klingel ([0-5]%), Neckermann ([0-5]%), ebay ([0-5]%), Esprit
([0-5]%), and Bader ([0-5]%). On this market, the parties have a combined market
share of [50-60]% ([40-50]% plus [0-5]%) and are thus ten times larger than their
biggest competitor;
c) "Underwear": Neckermann ([5-10]%), Bader ([5-10]%), Klingel ([0-5]%), QVC ([0-
5]%), and Tchibo ([0-5]%). On this market, the parties have a combined market
share of [50-60]% ([40-50]% plus [5-10]%) and are thus nine times larger than their
biggest competitor;
38 Unless indicated otherwise, all market data in the following analysis by Member State refers to the home-
shopping market (comprising sales by catalogue, internet, TV, etc.) in 2008. All data on the total market
size in Germany as shown in table 1 and the following table 2 were corrected by the Commission since
the notifying party made a calculation error in deducting VAT from the original GfK data.
39 The analysis of the competitive landscape does not take into account the effect that Quelle turnover,
which Otto is not able to achieve with the assets to be transferred, would need to be allocated to
competitors of the merged entity. Indeed, due to the high market shares of the parties and under the
assumption that remaining customers in the market would turn to both Otto and its competitors, the
outcome of the analysis of the competitive landscape is unlikely to decisively change through this effect.
No adaptation has therefore been made for the market shares of competitors.
40 The information on competitors' market shares are based on GfK market research data. For their own
turnover, the parties provided their own data.
41 Regarding turnover generated by ebay, the notifying party argues that the entire ebay turnover needs to be
included in the relevant total market sizes in home-shopping. It should be noted that ebay is not a uniform
market player but rather acts as a platform/aggregator for the offerings of individuals and small
professional retailers. The market investigation showed that ebay in total (i.e. comprising both private
persons and professional sellers) cannot be considered as a single competitor. Some respondents see ebay
seller rather as customers while other indicate that on ebay often not the "latest" product are sold. In any
event, respondents indicated that only professional ebay sellers should be considered as competitors. In
line with these results of the market investigation, the market data provided in this decision only take ebay
turnover into account insofar it was generated by professional sellers.
11d) "Sport textiles": ebay ([5-10]%), Neckermann ([5-10]%), Tchibo ([5-10]%), Klingel
([0-5]%), and Esprit ([0-5]%). On this market, the parties have a combined market
share of [40-50]% ([30-40]% plus [0-5]%) and are thus almost five times larger than
their biggest competitor;
e) "Sport shoes": ebay ([10-20]%), Neckermann ([5-10]%), Amazon ([0-5]%), Bader
([0-5]%), and Klingel ([0-5]%). On this market, the parties have a combined market
share of [50-60]% ([40-50]% plus [5-10]%) and are thus more than four times larger
than their biggest competitor.
f) "Furnishing total" 42 : ebay ([10-20]%), Neckermann ([5-10]%), QVC ([0-5]%),
Tchibo ([0-5]%), Bader ([0-5]%). On this market, the parties have a combined
market share of [40-50]% ([30-40]% plus [5-10]%) and are thus more than three
times larger than their biggest competitor.
g) "Furniture": ebay (20-30]%), Neckermann ([5-10]%), Bader ([0-5]%), Ikea ([0-
5]%), and Tchibo ([0-5]%). On this market, the parties have a combined market
share of [50-60]% ([40-50]% plus [10-20]%) and are thus two and a half times larger
than their biggest competitor;
h) "Home textiles": QVC ([5-10]%), ebay ([5-10]%), Neckermann ([0-5]%), Tchibo
([0-5]%), and Bader ([0-5]%). On this market, the parties have a combined market
share of [50-60]% ([40-50]% plus [10-20]%) and are thus five and a half times
larger than their biggest competitor;
41. Table 2 below shows all further affected product categories, i.e. where the parties'
combined market share is between 15%-40% if 50% of Quelle's turnover were taken
into account. 43
Market shares in %
Market size
Germany 100% of Quelle turnover 50% of Quelle turnover
Million EUR Otto
Quelle Combined Quelle Combined
Fashion Men's apparel […] [20-30] [10-20] [40-50] [5-10] [30-40]
Children's apparel […] [30-40] [5-10] [40-50] [0-5] [30-40]
Shoes […] [20-30] [5-10] [30-40] [0-5] [30-40]
Sports total […] [20-30] [5-10] [30-40] [0-5] [30-40]
Technics Electronics […] [10-20] [5-10] [20-30] [0-5] [10-20]
Large electric appl. […] [10-20] [30-40] [40-50] [10-20] [30-40]
Small electric appl. […] [10-20] [5-10] [10-20] [0-5] [10-20]
Furnishing Homeware […] [10-20] [5-10] [20-30] [0-5] [10-20]
Lighting […] [10-20] [10-20] [20-30] [5-10] [10-20]
Toys Toys […] [10-20] [10-20] [20-30] [5-10] [10-20]
Table 2
42. For several out of these ten product categories the parties are still the most important
market player, however, in each of these categories they are faced with strong
competitors. For all other product categories the parties are either smaller or only
slightly larger compared to their main competitors. More in particular, for the
different product categories, the parties' main competitors and their market shares
42 The category "Furnishing total"(or hereinafter also referred to as "Furniture and Furnishing") is the sum
of the product categories "Furniture", "Kitchen", "Lighting", "Home textiles" and "Homeware".
43 On the overall home-shopping market in Germany (not differentiated between product categories) the
parties reach a combined market share of [20-30]%.
12compared to the parties' market shares (taking account of 50% of Quelle's turnover)
are:
a) "Men's apparel": Neckermann ([5-10]%), ebay ([0-5]%), Esprit ([0-5]%), Klingel
([0-5]%), Tchibo ([0-5]%). On this market, the parties have a combined market
share of [30-40]% ([20-30]% plus [5-10]%).
b) "Children's apparel": ebay ([20-30]%), Neckermann ([5-10]%), H&M ([5-10]%),
Tchibo ([0-5]%), Esprit ([0-5]%). On this market, the parties have a combined
market share of [30-40]% ([30-40]% plus [0-5]%) and are faced with strong
competitors. It is also important to note that throughout the Commission's
assessment only ebay turnover generated by professional sellers is taken into
account. In particular for the category "children's apparel" it is to be expected that
also private sellers exercise to a certain extent competitive pressure on the parties.
c) "Shoes": ebay ([5-10]%), Klingel ([0-5]%), Neckermann ([0-5]%), QVC ([0-5]%),
Bader ([0-5]%). On this market, the parties have a combined market share of [30-
40]% ([20-30]% plus [0-5]%). While the parties are significantly larger than the
biggest competitor, with Klingel, Neckermann and Bader the three main competitors
of the parties are active in this market. Furthermore, the increment of [0-5]%, which
is added through the transaction, is smaller than the market shares of the three
largest competitors.
d) "Sports total" 44 : ebay ([10-20]%), Neckermann ([0-5]%), Tchibo ([0-5]%), Amazon
([0-5]%), and Klingel ([0-5]%). On this market, the parties have a combined market
share of [30-40]% ([20-30]% plus [0-5]%) and are thus only less than two times
larger than their biggest competitor.
e) "Electronics": Conrad Electronics ([30-40]%), Amazon ([10-20]%), ebay ([10-
20]%), Neckermann ([0-5]%), and Weltbild ([0-5]%). On this market, the parties
have a combined market share of [10-20]% ([10-20]% plus [0-5]%). The parties do
not reach half the size of Conrad Electronics and are thus much smaller than their
biggest competitor.
f) "Large electrical appliances": ebay ([0-5]%), Neckermann ([0-5]%), Karstadt ([0-
5]%) and amazon ([0-5]%). On this market, the parties have a combined market
share of [30-40]% ([10-20]% plus [10-20]%). While the parties are larger than their
biggest competitor, especially for the product category "large electric appliances",
sizeable competitive pressure from "brick and mortar" suppliers exist (e.g. Media
Markt/Saturn), also, since service levels between home-shopping and "brick and
mortar" are similar as products due to their size and weight are usually delivered to
the customers' home.
g) "Small electrical appliances": Amazon ([10-20]%), ebay ([10-20]%), Conrad
Electronics ([5-10]%), Neckermann ([0-5]%) and Tchibo ([0-5]%). On this market,
the parties have a combined market share of [10-20]% ([10-20]% plus [0-5]%) and
are thus roughly of the same size as their biggest competitor.
44 The category "Sports total" is the sum of the product categories "Sports equipment", "Sports textiles", and
"Sport shoes".
13h) "Homeware": ebay ([10-20]%), QVC ([5-10]%), Weltbild ([0-5]%), Tchibo ([0-5]%)
and Amazon ([0-5]%). On this market, the parties have a combined market share of
[10-20]% ([10-20]% plus [5-10]%).
i) "Lighting": ebay ([5-10]%), Neckermann ([0-5]%), Tchibo ([0-5]%), QVC ([0-5]%)
and HSE ([0-5]%). On this market, the parties have a combined market share of [10-
20]% ([10-20]% plus [5-10]%).
j) "Toys": ebay ([10-20]%), Amazon ([5-10]%), QVC ([0-5]%), Weltbild ([0-5]%) and
HSE ([0-5]%). On this market, the parties have a combined market share of [10-
20]% ([10-20]% plus [5-10]%) and are thus smaller than their biggest competitor.
43. As regards the parties' position with respect to local markets in Germany in a possible
overall market comprising "brick and mortar" retailing and home-shopping, it should
be noted that Otto's retail shops only sell fashion, sport goods and toys. As regards
fashion (in total and in any specific sub-categories) and toys, the parties' combined
market share is at most 20% and 10% respectively in any local area. The parties
combined market shares with regard to sport goods are in all local areas below 30%
for all sub-categories apart from sport textiles. The parties' market share for sports
textiles are between 30 and 40% or below in all local areas, except for Dresden and
Magdeburg where the parties' combined market share is [40-50]% and [40-50]%
respectively. In all local areas the increment brought about by the proposed
transaction (i.e. the acquisition of the Quelle assets) is very low, namely [0-5]%. In
addition, there are several competitors active in each local area in Germany, for
instance Sportsarena, Runners Point, Foot Locker and Karstadt Sporthaus in Dresden
as well as Sport2000, InterSport and Wöhrl in Magdeburg.
14Closeness of competition
44. Regarding closeness of competition, a majority of respondents to the market
investigation indicated that Otto and Quelle were each other's closest competitors
followed by Neckermann. 45 This result is also underlined by figures provided by the
notifying party, indicating that [significant share] of Quelle's customer bought also at
Otto and [significant share] of Otto's customer bought at Quelle. However, it needs to
be noted in this context that the responses to the market investigation mainly refer to
Otto's and Quelle's catalogue business and it is not fully evident if the same
conclusion can be drawn for the entire home-shopping market in Germany. For the
online segment of the home-shopping market also competitors as Amazon or ebay
were named in the market investigation as close competitors. Furthermore, it appears
that Otto and Quelle at least to a certain extent were focussed on different customer
groups, with Otto on average targeting younger customers compared to Quelle. 46 In
addition, closeness of competition between Otto and Quelle has likely decreased with
Quelle's insolvency.
Competitive pressure from "brick and mortar" retailing
45. The parties argue that, if "brick and mortar" and home-shopping are not considered as
the same market, the "brick and mortar" sector at least exerts considerable
competitive pressure upon the home-shopping market. According to the parties (i)
52% of all households in Germany use home-shopping by internet and catalogue; (ii)
no typical home-shopping or catalogue customer exists and the number of customers
dependent on home-shopping would be negligible; and (iii) all significant retailers
use different channels for the sale of consumer goods ("multi-channel approach")
with similar product assortments and conditions in these different channels. The
parties further argue that no price discrimination is possible between "brick and
mortar" and home-shopping due to a significant cross price elasticity and price
transparency between these channels and consequently in case of a price increase of
5-10% in home-shopping a sufficient number of customers would switch to "brick
and mortar" retailers so as to render such a price increase unprofitable for home-
shopping companies. According to the parties, the similarities between "brick and
mortar" and home-shopping would be even more obvious in the case of the product
category "furniture" and large electric appliances where also "brick and mortar"
shops are often delivering the products purchased to the customer's home.
46. Furthermore, the parties consider that there is also a high competitive pressure within
the home-shopping channel which stems from very low barriers to entry into online-
shopping and a high growth potential of the online-shopping segment. Lastly, the
parties believe that they are exposed to strong actual and potential competition within
the home-shopping market in view of the presence of strong multi-channel players
(e.g. Tchibo, Conrad) and recent or planned expansion of traditionally stationary
retailers into the home-shopping market (e.g. C&A and Lidl for apparel &
accessoires; Karstadt for apparel, home & living; Adidas, Nike for sport goods; Görtz
45 Responses to questions number 32 and 33 of the Commission's questionnaire to competitors dated
06/01/2010 and questions number 21 and 22 of the Commission's questionnaire to consumer
organisations dated 06/01/2010.
46 Responses to questions number 29-31 of the Commission's questionnaire to competitors dated 06/01/2010
and questions number 18-19 of the Commission's questionnaire to consumer organisations dated
06/01/2010.
15for shoes; Baby-Walz for children apparel; Bolia/Habitat for furniture; Mediamarkt
launching its web shop in 2010).
47. The Commission's market investigation has not confirmed the parties' argument that
in case of a price increase in home-shopping a sufficient number of customers would
switch to "brick and mortar" retailers and would thus render such a price increase
unprofitable for home-shopping companies.
48. On the other hand, the market investigation has indicated that there is indeed some
degree of competitive pressure exercised by home-shopping and by "brick and
mortar" shops on each other as regards the non-food retail sector.
49. In general terms, it must be noted that all sales channels compete among each other
in order to attract the largest possible number of retail customers. As indicated above,
an important advantage of home-shopping vis-à-vis "brick and mortar" is that
shopping is possible on a 24h/7 days per week basis and there is no limitation as
regards the spectrum and quantity of products on offer; there is a high degree of
transparency as regards prices and features of goods, which allows for a relatively
easy comparison between different sellers. This appears to be appealing to consumers
particularly strongly as regards electronics but less strong when they purchase
furniture or clothing. 47 Moreover, distance selling is subject to consumer-friendly
regulation granting consumers the right to revoke the purchase agreement and send
back the goods after having received and tested them within a specified period of
time.
50. However, an important advantage of brick and mortar is that goods can be inspected
and specialist advice is available if necessary. It should be noted that this feature of
shopping at high street shops may be considered by customers more important for
certain product categories than for other. For instance, according to a study submitted
the parties, the majority of customers in Germany (52%) consider that they need to
see furniture "in the flesh" before they buy, whereas this proportion is much lower for
electronics (31%) and clothing (39%). 48 Moreover, goods are often available
immediately at high street shops, which according to the aforementioned study
appeals to 70% of German consumers when they purchase furniture and to 64% of
German consumers when they purchase clothing. 49
51. The market investigation has shown that even though the price structure is different
in these two retail channels (due to different cost items), the prices and conditions of
comparable goods at these channels have been converging and in some instances they
might be identical. This results from the fact that retailers observe that an increasing
number of customers use various channels simultaneously in order to make a
purchase decision. One respondent to the Commission's market investigation
underlined in this context that "brick and mortar" companies moving into the home-
shopping business "have a strong advantage in the retail market given their ability to
leverage their "brick and mortar" presence".
47 McKinsey survey, Where it's @-E-tailing from a multichannel perspective, August 2008, page 14.
48 McKinsey survey, Where it's @-E-tailing from a multichannel perspective, August 2008, page 12.
49 McKinsey survey, Where it's @-E-tailing from a multichannel perspective, August 2008, page 12.
1652. It is also clear from the market investigation that a large number of home shopping
providers regularly monitor "brick and mortar" competitors and vice-versa 50 .
Besides, some home-shopping providers indicated that they align their discount
periods with the so-called "sales" period at "brick and mortar" stores. Consequently,
some respondents to the Commission's market investigation forecast that competition
between distance selling and brick and mortar will intensify even further over the
coming years.
53. In addition, it should be noted that the home-shopping segment is relatively small
compared to the overall retail market. For instance in the case of Germany, the
categories "Clothing and Footwear", "Furniture and Furnishing" and "Sports Goods"
only account for a relatively small part of the overall retail market (i.e. approximately
20%, 10% and 10% respectively). The bigger "brick and mortar" segment is thus by
the very nature of its size likely to exert relatively strong competitive pressure on the
home-shopping segment. This has also been underlined by a respondent to the market
investigation who stated that "because brick & mortar companies maintain the
dominant share of retail sales, home-shopping companies have less of a competitive
influence".
54. The fact that the "brick and mortar" segment exerts a certain degree of competitive
pressure upon the home-shopping segment is further evidenced by several market
studies submitted by the notifying party. According to a study issued by the Forrester
research institute in November 2009, merely 17% of consumers in several European
countries (including Germany) relied solely on the web from the start of their
research for a product to its purchase, while all other consumers went "offline" at
least at some stage of the research and purchasing process. Furthermore, a study of
the German E-Commerce and Distance Selling Trade Association ("bvh") of July
2009 shows that - although the share of the home-shopping segment in the overall
retail market has increased continuously over the past years - multi-channel players
remain the predominant segment in the home-shopping market.
55. On the other hand, however, it is clear that in terms of closeness of competition
between different retail channels online retailers and universal distant sellers (such as
Otto, Quelle and Neckermann) are each other's closer competitors than they are in
relation to "brick and mortar" retailers. Indeed, a study submitted by the parties deals
with the competitive relationship between various retailers and concludes that
internet specialists are closer competitors to universal distant sellers than stationary
retailers. 51
Conclusion
56. It follows from the above that in view of the parties' strong absolute and relative
market position (even in case only 50% of Quelle's turnover is considered) and their
closeness of competition, the proposed transaction raises serious doubts as to its
compatibility with the Common Market with regard to the possible home-shopping
market in Germany in the following product categories: (i) Fashion total, (ii)
50 Responses to question number 21 of the Commission's questionnaire to competitors dated 06/01/2010.
51 Price Waterhouse Coopers, Multichannel Management, Erfolgreich in der (neuen) Vielfalt, 05/11/2009,
page 17.
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